TLE PACA and Freight Claims Blog – Page 2

When PACA Says Thirty Days, it Means . . . Thirty Days. Ignore This at Your Peril, Appellants!

Know the Rules, and especially the Statute! And pay close attention to the progress, or lack thereof, of your case. This is the warning that any PACA litigator must take seriously when prosecuting or defending a formal reparation proceeding before the Department of Agriculture (USDA).

In Brahm Foods v. DR Asian Produce, Case No. 20-cv-63, U.S. District Court, Eastern District of New York (March 31, 2021), the USDA, following an administrative hearing, entered an order of reparation in favor of DR Asian Foods and against Respondent Brahm, in the amount of $52,701.39 (plus interest and an additional $500). Pursuant to PACA, Brahm then appealed this order to the District Court, almost five months after the date of entry of the reparation order. DR Asian moved to dismiss appeal, arguing that the appeal was filed more than 30 days after the reparation order was entered, and more than 30 days after the hearing officer denied a motion for reconsideration.

In its Petition in the District Court, Brahm argued that it did not receive a copy of the reparation order until months after it was entered. Without citing any supporting facts, Brahm argued that the order was sent to its prior attorney, and that Brahm did not become aware of it until approximately three and a half months after its entry. Brahm then argued that any delay on its part was inadvertent.

In granting DR Asian’s motion to dismiss Brahm’s petition and appeal, which motion, significantly and inexplicably, Brahm did not oppose (?!), the court held that it lacked subject matter jurisdiction to hear the appeal. It noted that the applicable provisions of PACA provide that an appeal from a reparation order must, among other things, be filed within 30 days after the entry of the order (or after the denial of a petition for reconsideration), and must be accompanied by a bond in twice the amount of the order plus an estimated attorneys’ fee for the other side if the appeal is denied.

Failure to comply with these statutory mandates deprives the reviewing court of subject matter jurisdiction to hear the case. So ruled the court in Brahm. Applying the law to the case before it, the court denied Brahm’s petition to appeal, and about four months later entered an order awarding DR Asian attorney’s fees in the amount of $2,476.02.

Left unsaid in the case is whether any reason, however factually justified, can excuse a party’s non-compliance with PACA’s statutory jurisdictional requirements. Sadly, for aggrieved parties, the answer appears to be no. Citing one case, for example, the court in Brahm noted that a reviewing court does not even have the authority to grant a request for an extension of time to perfect an appeal.

So the bottom line for any PACA litigator is: read the statute; know its requirements, both as to timing and substance; and follow them to the letter. Remember: a deadline to file an appeal is not the same thing as a statute of limitations which can, in some instances (not to be encouraged, of course) be extended or waived. In the case of the filing of an appeal, as the Brahm case aptly illustrates, he or she who hesitates is indeed lost, totally and irrevocably.

USDA Restricts Produce Businesses (2-12-2020 Releases)

As described in releases issued on February 12, 2020, the United States Department of Agriculture has restricted several businesses from operating in the produce industry.

The following are excerpts from those releases:

Lurie Brothers LLC, operating out of Chicago, Ill., for failing to pay a $26,163 award in favor of an Arkansas seller.
Central America Specialties Inc., operating out of Beltsville, Md., for failing to pay a $2,575 award in favor of a Florida seller.
A & A Vegetables Inc., operating out of Hicksville, N.Y., for failing to pay a $70,200 award in favor of a California seller.
Hunter Bros. Inc., operating out of Philadelphia Pa., for failing to pay a $2,682 award in favor of a New Jersey seller.
See this press release for additional information regarding the above four businesses.

Basic Meats Supermarket Inc., doing business as Bravo Dixie Supermarket, operating out of Miami, Fla., for failing to pay a $17,723 award in favor of a Florida seller.
Farmway Inc., operating out of Hudson, Fla., for failing to pay a $27,558 award in favor of a Utah seller.
Organic Harvest LLC, operating out of Miami, Fla., for failing to pay a $12,089 award in favor of a Florida seller.
Mibo Fresh Foods LLC, operating out of Fort Worth, Texas, for failing to pay a $220,153 award in favor of a Washington seller.
See this press release for additional information regarding the above four businesses.

Lorex Produce LLC, operating out of Rio Rico, Ariz., for failing to pay a $48,826 award in favor of a Florida seller.
Arizona Lemons LLC, operating out of Phoenix Ariz., for failing to pay a $16,776 award in favor of a Minnesota seller.
Perfect Harvest Inc., operating out of Nogales, Ariz., for failing to pay a $243,240 award in favor of an Arizona seller.
Super HK HG LLC, doing business as Hong Kong Supermarket, operating out of Hawaiian Gardens, Calif., for failing to pay a $4,774 award in favor of a California seller.
See this press release for additional information regarding the above four businesses.

When a Rebate Isn’t a Rebate under PACA

Meuers Law Firm v. Reasor’s, LLC is a recent case from the United States Court of Appeals for the Tenth Circuit that addresses an interesting issue under the Perishable Agricultural Commodities Act (PACA), i.e., whether PACA creditors who are beneficiaries of the PACA trust can recover from a PACA debtor amounts that the debtor claimed were rebates due under its contractual arrangement with the creditor. Put another way, in an action under PACA between a supplier of produce and a buyer, can the buyer claim a credit for amounts that it claimed were due it from the supplier as rebates for purchases made?

The majority (2-1) opinion held that both under PACA and under common law trust principles a debtor cannot claim a set-off for alleged rebates due. In a lengthy and scholarly opinion the judges held that the claimed set-offs were not transfers “for value,” and therefore the debtor was not a bona fide purchaser. The supplier was entitled to recover the full amount of its claim, and the debtor could not reduce that amount by subtracting from it the amounts of the rebates to which it believed it was entitled.

In a vigorous and lengthy dissent, Judge Carson, relying on a case from the Second Circuit, opined that because the rebates were not prohibited or unlawful under PACA there is no reason why they should not be credited against the full amount claimed by the supplier. While the dissent’s reasoning is initially appealing, if not entirely convincing, it was undermined, as the majority contended, by a subsequent decision from the Second Circuit Court of Appeals that cast doubt on whether the earlier decision was still good law. Even the dissent seemed to admit this, when it stated that, “the Second Circuit got it right the first time around,” thereby implying that the later case, cited by the majority, was indeed contrary to the Second Circuit’s earlier opinion upon which the dissent was in large part based.

H.C. Schmieding Produce Company, LLC v. Lurie Brothers, LLC, et al (N.D. Ill)

Last month H.C. Schmieding Produce Company, LLC (“Schmieding”) of Springdale, Arkansas filed a Perishable Agricultural Commodities Act (PACA) lawsuit in the United States District Court for the Northern District of Illinois against Lurie Brothers, LLC (“Lurie”) of Chicago and several individual defendants (Case. No. 1:19-cv-07933).

Over the course of six weeks in 2018, Schmieding allegedly sold Lurie wholesale quantities of produce for which a balance of about $26,000 allegedly remains due and owing. Schmieding seeks damages from Lurie, plus pre-judgment interest, costs and attorneys’ fees, and the imposition of personal liability for same upon each of the four named individual defendants.

The case has been assigned to the Honorable Elaine E. Bucklo.

PACA, Poor Recordkeeping & Personal Liability

Earlier this year Judge William H. Pauley III of the United States District Court for the Southern District of New York issued an opinion in a case involving claims under the Perishable Agricultural Commodities Act (“PACA”) by a produce wholesaler (“Moza”) against another wholesaler (“Tumi”) and several of Tumi’s officers and agents.

Moza claimed it was owed $222,709.93 for unpaid bills for produce shipped to Tumi and for certain freight charges. Moza also contended it was entitled to prejudgment interest on the amounts claimed.

The court noted that neither party was “adept at recordkeeping, and the evidence at trial was disorganized.” Much of the oral testimony was contradictory, so the judge had his hands full trying to determine who was right and who was wrong.

Without getting into the details of each particular claim, which involved about two dozen separate shipments and sales, the primary issues before the court were:

Whether Moza, the seller, received full payment, and was entitled to reimbursement for freight charges.
Whether Moza preserved its PACA trust rights.
Whether the individual defendants, and a successor corporate defendant, were liable under PACA.
Whether Moza was entitled to pre-judgment interest.

As to (1) above, the court concluded, contrary to Tumi’s arguments, that as to shipments that were allegedly inspected by the USDA and found wanting, Tumi failed to prove its case that Moza either agreed to accept lesser amounts for such shipments, or that according to industry custom and usage payment of lesser amounts was warranted.

With respect to transactions paid with cash, the court found that the invoices which provided that Moza would accept lesser amounts were not reliable, particularly in the face of the testimony of Moza’s agent that his signature on such invoices had been forged.

With respect to transactions involving revised invoices for increased amounts of produce shipped, the court found that Moza had met its burden of showing that such transactions had in fact occurred and that Moza was entitled to full payments of such revised invoices.

The court also found that where Tumi had failed to offer any evidence of payment of certain invoices, all of those invoices remained due.

However, as to Moza’s claim for freight charges, the court found that because Tumi never agreed to the payment of freight charges with respect to its transactions with Moza, Moza could not recover for the same.

As to (2) above, the court found that Moza had preserved its PACA trust rights by including on its invoices the requisite PACA language. The judge rejected Tumi’s argument that Moza failed to prove that it protected its PACA rights because it did not prove at trial when the invoices were created and when they were served on Tumi. The judge noted that Moza ”was not required to show delivery of the invoices beyond a metaphysical doubt.” The testimony of Moza’a agent that the invoices were delivered to Tumi normally within a day after the produce was shipped was sufficient.

Regarding (3) above, the court found that the company’s principal, who conceded that she controlled Tumi’s finances, and who signed payment checks to Moza, was personally liable as a person who was in the position to control the assets of the PACA trust and who failed to preserve them.
As to another person, “Mike,” who was not on the PACA license as a principal, and who was not an officer or director of Tumi, and who did not have authority to write checks or make withdrawals from the corporate bank account, and who described himself as only a salesman, the court nonetheless held him to be personally liable. The court noted that the evidence showed that Mike was the person who had almost all of the contact with Moza. It also did not help his case when Moza’s agent testified that Tumi’s principal told him, with respect to his inquiries about short payment checks, that he should “talk to Mike, that’s between you and Mike; I just write the check.” The court also noted that a string of text messages corroborated that testimony.

As to a third individual, “William,” the judge found him not to be personally liable, even though his name was on the PACA license, and he had been a majority shareholder of the company, where Moza had presented only “conclusory and undetailed evidence” of his involvement and control over PACA trust assets.

Finally, the court concluded that a successor company that assumed and continued Tumi’s business after Tumi’s dissolution, was not liable where Moza failed to present any evidence of the “hallmarks of continuation,” especially evidence of continuity of ownership of the two companies.

As to (4) above, the judge, exercising his discretion, declined to award prejudgment interest to Moza, noting that PACA does not provide for prejudgment interest, and the contract between the parties (the invoices and documents of shipment) does not provide for it.

In conclusion, in what must be seen as a substantial victory for Moza, even though it did not get everything it wanted, the court entered judgment against Tumi and the above two individual defendants in the amount of $218,921.73, which was approximately 98% of Moza’s total claim, less interest.

Moza, LLC v. Tumi Produce Int’l Corp., et al., 17 cv 1331 (S.D.N.Y. 2019)

The Best of Intentions Meet the Federal Perishable Agricultural Commodities Act (PACA)

It is not uncommon for produce merchants to conduct business with each other. One company might buy produce from another one day, and sell produce to it the following day. While on the surface such an arrangement is not a cause for concern, unforeseen circumstances – for example, a bankruptcy filing by one of the merchants – could present problems for companies with which it has this type of relationship.

Earlier this year a federal appellate court in New York reviewed a case involving two produce merchants that regularly conducted business with each other. The companies, which operated out of the same terminal in Buffalo, New York, each bought produce from the other for resale to its respective customers. Both merchants issued invoices with appropriate trust preservation language, but intended for the dollar amounts of such produce sales to be about the same. They intended that each would purchase about the same dollar amount of produce form the other, resulting in their payables offsetting each other, with no actual payments being necessary.

Unfortunately for both merchants, that isn’t how things played out. One of them (LPP) later filed for bankruptcy court protection. The other (GP) found itself as both a creditor and debtor of LPP, never having been paid for the produce it sold to LPP.

The Second Circuit, affirming decisions below, ruled that the debts between LPP and GP could not be off set against each other. The federal Perishable Agricultural Commodities Act (PACA), and cases construing it, direct that GP’s entire indebtedness to LPP ($204,774.88) was a PACA trust asset. Such asset never become a part of the bankruptcy estate, and could not be offset by the amounts owed to GP by LPP.

But it wasn’t all bad news for GP. The other PACA trust creditors argued that because GP apparently did not file a proof claim in accordance with the claims procedure order entered by the district court, it had given up any rights it may have had to participate in the distribution of PACA trust assets to creditors with valid PACA trust claims. The panel concluded that GP’s (i) pre-bankruptcy PACA notices to LPP, (ii) proof of claim filed in the bankruptcy matter, and (iii) reasonable (but mistaken) expectation that it was entitled to a bankruptcy offset, was sufficient to preserve its right to a pro rata distribution from the PACA trust assets.

Paca Tr. Creditors of Lenny Perry’s Produce, Inc. v. Genecco Produce Inc., 913 F.3d 268 (2nd Cir. 2019).